The Amazon (Tesla) Controversy

Nevada had to give Tesla tax concessions in order to induce them to put their mega-factory west of Sparks off of I-80. Concessions are a fact of life when it comes to attracting mega-businesses to a community. I do remember that then Governor Sandoval was criticized by some for “giving away too much” in the form of tax credits to Tesla.

I also remember asking a question in this column that went something like this: “How much in new taxes will Tesla pay if they don’t come to Nevada?” Clearly a rhetorical question. And, while we will never know whether or not Governor Sandoval and the other negotiators for the state got the best possible deal, things certainly do appear to have worked out nicely for Northern Nevada.

The lead article in the Business and Opinion section of the RGJ of Sunday, February 17, entitled “Revitalization,” (author Jason Hidalgo) discussed the recent spate of corporate activity (arrivals) in Northern Nevada, including Tesla, Apple, Switch, and Google. I should add that many more small and mid-sized technology firms have moved either HQs or significant operations into the area since the Tesla announcement. If you’re not convinced, just travel out I-80 east from Sparks and take a look at the Tahoe Reno Industrial Center, where the Tesla Gigafactory and Switch are located, and then, look across the street at Apple’s new data center. It should be apparent that the increase in economic activity and the larger tax base has more than made up for the tax concessions.

Rapid expansion, of course has its own set of issues, including rising housing costs. But back then, in one of those columns, I remarked that it would be better to have a housing shortage and rising housing costs than to have the opposite. Remember, we did have the opposite, with rapidly falling home prices and a lot of foreclosures, during the Great Recession. That was no fun! But, we can take comfort from knowing that, because of recent economic development, which all started with the Tesla deal, that when the next recession rolls around, the impact on Northern Nevada is likely to be much milder than what we experienced a decade ago.

And, so, it was mind blowing to see that the political resistance to Amazon’s selection of Queens N.Y. for their second HQs caused them to walk away. 25,000 potential high paying jobs plus the multiplier effect of those jobs (and the attraction of other potential businesses) just up and walked away! The political class and their anti-business allies claimed that $3 billion in tax breaks was just too much. This, despite the projection of $27 billion in new taxes from the huge increment of new economic activity. Apparently, the anti-Amazon forces either couldn’t see a “dynamic” scenario where almost everyone winds up better off, or just didn’t want to see that.They used the “static” scenario; i.e., $3 billion is just too much to give away to the greedy corporation (as tweeted by Ocasio-Cortez), to bludgeon Amazon and kill the deal.

Jeff Bezos is a multi-billionaire. Even after his upcoming divorce, he and his ex-wife will still be the two richest people on earth. Bezos did this by sticking with his concept and for years, reinvesting every penny back into the company. Only now, after some 20 years, is Amazon set to produce gigantic profits.

But, isn’t that what capitalism is all about? How many young multi-millionaires has the technology revolution produced? It is a fact that this very aspect of capitalism has caused the U.S. and its economy to be the envy of the world. It is the reason why the U.S. is the world’s leader, by far, in innovation and technological development. It’s also the reason why so many want to immigrate here! It isn’t unusual to see foreign born wealthy individuals who made it here with ideas and innovation, something they couldn’t do in their homeland.

In the February 16-17 edition of the weekend Wall Street Journal, in an article entitled “Amazon’s About-Face Is Good for the Rest of America,” the author remarked that by spreading out the 25,000 jobs into other cities, Amazon can develop more pockets of talent than if it put all those jobs into a crowded metro area, like Queens, to which many talented individuals or those with young families would be resistant to move. The author also wondered aloud about the reason for the second HQ. “In Seattle,” he said, “the company’s scale and economic clout means it is often blamed for whatever is wrong in the city, from skyrocketing housing prices, to traffic. In seeking ‘HQ2,’ it might have been looking for a way to alleviate the pressure and even shift its center of power… Imagine, then, the surprise when the company discovered that New York City could be just as hostile, politically.” They may have concluded that they were just going to end up with an east coast version of Seattle, and pulled the plug! Bad for New York; but good for some lucky city(ies)!

Northern Nevada, while not in the author’s list (bigger cities like Phoenix, Detroit, Pittsburgh, San Antonio … were mentioned) is certainly a great example of how a little bit of public support and foresight by the local politicians, business community, and citizenry, can cause significant business growth and development.

Robert Barone, Ph.D.

Robert Barone, Ph.D. is a Georgetown educated economist. Robert’s career includes his having served as a Professor of Finance, a community bank CEO and a Director and Chairman of the Federal Home Loan Bank of San Francisco. Robert is currently an Investment Advisor at Four Star Wealth Advisors (775 284-7778). He is also a Director of CSAA Insurance Company, a Director of the Northern California/Nevada/Utah AAA auto club, and a co-portfolio manager of the Fieldstone Financial Unconstrained Medium-Term Fixed Income ETF (FFIU).

Statistics and other information have been compiled from various sources. The facts and information are believed to be accurate and credible, but there is no guarantee as to the complete accuracy of this information.

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